Solar power developers may defer module imports; flat year ahead for firms

India added 6.5 Gw of solar power in the last financial year

After sluggish growth in 2018-19, the current fiscal is set to be another flat year in solar power addition as developers are likely to hold back purchase of solar modules due to the steep duty levied on imports.

India added 6.5 gigawatts (GW) of solar power in last financial year as developers deferred module imports on the lingering uncertainty over imposition of 25 per cent trade duties on imported solar modules. Apart from that, lack of clarity on the taxation classification for solar modules, inverters and construction contracts amidst the newly rolled out Goods & Services Tax (GST) throttled growth in new solar installs.

US-based Institute for Energy Economics & Financial Analysis (IEEFA) expects another near-flat year for utility-scale solar power developers with 7-8 GW commissioned by March 2020.

“We expect solar developers to hold off their module imports to pay the least rate of safeguard duty at 15 per cent, which could mean a sluggish commissioning rate for solar power during the first three quarters of FY20. The 20 per cent import duty period ends on January 30, 2020 and accelerated commissioning is likely to take place after that date. Given the amount of import duties, developers are likely to risk delaying their module purchases. Currency exchange volatility that could further push prices up”, IEEFA noted in its analysis.

On July 30 2018, the Government of India clamped a safeguard duty on imported solar cells from China and Malaysia for two years. The import duty is pegged at 25 per cent for the first 12 months, at 20 per cent for the next six months and 15 per cent for the balance period. Effectively, the duty period ends on July 29, 2020.

IEEFA argues that domestic solar module manufacturing lacked the scale to match the ultra competitive prices of modules made in China propped up by enormous economies of scale and rapid, ongoing technology innovation.

IEEFA views FY2019 as a ‘blip’ for the Indian renewable energy industry, as its long-term technology and price-based fundamentals will continue to strengthen the industry’s upward trajectory.

“Short-term missteps are getting in the way at a time when India is considering an ambitious acceleration of renewable energy deployments to 500 GW by 2028, requiring a $500bn investment in generation and another US$250bn in grid expansion and modernisation”, it added.

Despite the chaos evident in completion, India ended FY19 with 22.5 GW of renewable capacity auctions awarded, but yet to be built, and another 37 GW of capacity under various stages of tendering and bidding. Of the 22.5 GW of renewable capacity auctioned in the last year, 21.6 GW was awarded at below Rs 3 per kWh (kilo watt hour), with zero indexation for 25 years, locking in real electricity sector deflation for decades to come.